Is Lululemon a Buy, Sell, or Hold in 2025?

The retail sector broadly, and apparel and footwear specifically, is a very competitive market. That's why Lululemon Athletica's (NASDAQ: LULU) ascent in the industry is so remarkable. It has successfully carved out a niche, amassing a loyal following.

Shares hit their peak of $516.39 in December 2023. Since then, it's been a tough time for investors, as shares have fallen 66% (as of Oct. 3). It's worth taking a closer look at what's going on with Lululemon.

Should investors buy, sell, or hold this consumer discretionary stock in 2025?

Image source: Getty Images.

Don't forget that Lululemon remains a premium brand

Despite the stock falling from grace, it's really easy for investors to view the business in an extremely favorable light. For starters, Lululemon pioneered the athleisure trend, starting with its popular women's yoga pants. Today, the company sells apparel in a wide range of categories that target both women and men.

The brand is key to Lululemon's industry position. This is a premium line of high-priced, high-quality goods. This is clear, as Lululemon's gross margin has averaged a robust 57.5% in the past five years. Compared to rivals, Lululemon depends primarily on its own distribution channels, like company-owned stores and its website, to sell merchandise, giving it greater control over pricing and product assortment.

Another sign of the brand's strength is Lululemon's announced partnership with American Express, giving Platinum cardholders a quarterly $75 statement credit when shopping at Lululemon. This aligns the company with a credit card that's popular among an affluent demographic. American Express wouldn't ink such a deal if it didn't think it would lead to more spending activity on its platform.

Lululemon is finding tremendous success growing overseas, demonstrating the brand's appeal across borders. China is a major opportunity, and management is rapidly opening new stores there. Revenue in the country increased 25% in the second quarter (ended Aug. 3) to $393 million. China now accounts for 16% of Lululemon's total sales, up from a 9% share three years ago.

Competition in the apparel market will always be fierce

Between Q2 2015 and Q2 2025, the business saw its revenue soar 457%. Lululemon's monster success to get to this point, unsurprisingly, has drawn the attention of rivals looking to benefit from the ongoing trend of consumer demand for athleisure products.

The business is getting attacked on all fronts. On the high-end side of the spectrum, Alo Yoga and Vuori are finding success. Consumers who have greater buying power might choose to spend here in an effort to wear what's most popular at the moment.

Lululemon must also deal with brands like Gymshark and Fabletics that sell merchandise at cheaper price points. This can attract a wider audience of price-sensitive shoppers who might not be that target customer Lululemon focuses on.

Then there is the problem of the company's weaker performance in the U.S. where revenue dipped 0.5% year over year during Q2, dragging down overall company results. Demand is weak. And Lululemon must deal with tariffs, which are expected to hurt profits.

Patient investors with a long time horizon need to take a look

While the company deals with challenges, there are reasons to still be bullish on the business. The negative forces are outweighing any positive views, though, as shares trade at a dirt-cheap price-to-earnings ratio of just 12. That valuation isn't justified, which makes the stock a smart buy.

This doesn't mean that the stock can't fall further from this point. Lululemon still faces headwinds. And if sales in the U.S. disappoint, especially during the holiday shopping season, the market might become even more discouraged, risking a sell-off.

Investors should expect continued volatility. However, there is a good chance that the business gets on stronger footing, the valuation rerates upward, and the stock is a winner over the next five years.

American Express is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.